To establish an effective accounting system, you must design an operational plan, select appropriate accounting software and train people to use the system. You can change the system with preplanned additions if your system is set up according to your specific business needs. Your accounting system should keep you informed about the amount and source of money that comes into your business, and where and how much is expended.

Step 1

Devise an operational plan that’s appropriate for the size, products and services of your company. The plan is based on a general ledger, the basic accounting document for any system. The ledger is divided into categories, which are usually designated as large numbers, such as 1000, 2000, 3000. Each category is then divided into subcategories that are assigned numbers that start with the category number. For example, if the 6000 category is personnel, Joe might be identified as 6100, and his payroll taxes as 6108. Jane is identified as 6200, and her payroll tax as 6208. All of the category and subcategory numbers collectively are called a chart of accounts. Each item in a chart of accounts should have a unique number and must never overlap another item. .

Step 2

Prepare an operational plan for a larger business by consulting with the people who bring funds into the company and who are responsible for approving expenditure of those funds. Decisions about some categories of income and expense necessitate top administration approval. For example, you must determine if income is classified by the source, such as Company X and Company Y, by the type of services or products, or by a specific service or product. How you organize account items can affect managerial decision-making, so get their input into your plan.

Step 3

Choose accounting software after trying different programs that fit your company’s requirements and are easy to understand and use. Some companies may require a consultant to design a system from scratch or to modify an existing system. Most small businesses should be able to find an existing program from the many that are commercially available. Examine the programs to review the functionality of the categories in their sample chart of accounts, how easily categories can be added or deleted and what financial reports can be prepared and automated. A good program allows you to collect data in different formats at any time and easily fix incorrect entries.

Step 4

Establish rules for who can use the system and for what purposes. Determine who can make entries into the general ledger and create a password system to prevent malicious or inadvertent entries or changes. Decide who can examine the entries and produce reports. Devise a regular monitoring procedure to prevent problems and ensure the integrity of the data.

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About the Author

Roy Sylvan has a Ph.D. in communication studies. He directed a large city department of aging, was COO of a consulting company and provided management training to companies and nonprofits. Writing for more than 40 years, Sylvan has authored articles in trade journals, magazines and blogs, and wrote a how-to book on starting a business.